Legal actions taken by the government against mortgage fraud suspects have been slowing. Reflected in the decline is a significant reduction in the level of appraisal fraud. Also impacting activity was Florida, where mortgage fraud reports on recent originations have plummeted from reports on earlier vintages.
Pending mortgage fraud cases at the FBI were 1,954 in fiscal-year 2012, retreating from the previous year, when there were 2,691 cases.
Criminal indictments tied to mortgages fraud fell to 1,079 from 1,223 in fiscal-year 2011, while convictions slipped to 1,026 in the most recent period from 1,082.
The statistics were discussed in The LexisNexis 15th Annual Mortgage Fraud Report. The report was previously published at the Mortgage Asset Research Institute Fraud Report.
Indices included in the report reflect the types of mortgage fraud involved and activity by origination year.
LexisNexis determines the level of fraud based on reports made to the Mortgage Industry Data Exchange, or MIDEX, an industry-contributed database of subscriber-verified fraud and material misrepresentation involving industry professionals. Home Mortgage Disclosure Act data from the Mortgage Bankers Association was also used in the production of the report.
Around 94 percent of MIDEX reports last year involved originations that occurred in prior years.
Roughly 70 percent of last year’s MIDEX reports involved application fraud — the most of any category.
More than a quarter of the reports had appraisal-valuation fraud, while 20 percent involved fraudulent verifications of deposits.
Employment verification fraud was involved in nearly a fifth of reports, while 10 percent had bogus tax returns or financial statements. Around 5 percent involved fraudulent escrow or closing documents, and another 5 percent had bad credit documentation.
Many MIDEX reports involved more than one type of fraud, which is why the totals don’t add up to 100 percent.
On just 2012 originations, only 9 percent of reports involved appraisal fraud, sinking from a high of more than a third in 2009.
Incidents of collusion between professionals has been on the rise in recent years. Vermont raked worst in this category.
“As was noted in last year’s report, distressed homeowner fraud has replaced loan origination fraud as the most visible threat to the mortgage industry,” the report stated.
In Florida, the Investigation Mortgage Fraud Index was 805, indicating “that the state had over eight times the expected rate of reported fraud and/or misrepresentation based on its origination volume.”
The investigation fraud index reflects originations from current and prior years. A score of 100 indicates that reported fraud in the state is in line with national expectations based on originations.
Nevada was next with a 280 score, then Arizona’s 174, Delaware’s 165 and Illinois’ 150.
A second index, the Origination Fraud Index, reflects the level of mortgage fraud just based on 2012 originations.
With an origination index of 224, Ohio had the worst score. Ohio’s score suggest that fraud reports were double what would be expected for the level of originations in the state.
Next was New Jersey, where the index was 213. New Jersey was impacted by the Philadelphia-Camden-Wilmington Metropolitan Statistical Area, which accounted for 6.4 percent of all MIDEX reports, and the New York-Northern New Jersey-Long Island MSA, which generated 5.7 percent of national activity.
California followed with a 196 index. Boosting the Golden State’s score was the San Francisco-Oakland-Fremont MSA, where 12.1 percent of all reports were generated, and the Los Angeles-Long Beach-Santa Ana MSA, with 6.4 percent of the national aggregate coming from the area.
Florida’s 169 index for 2012 originations was substantially better than its score based on last year’s reports for all vintages. The Sunshine State’s index reflected the Miami-Fort Lauderdale-Pompano Beach MSA, where 4.3 percent of national activity occurred.
Washington rounded out the five-worst states with a 167 score.
“This year’s study suggests that the more shared problematic economic indicators a state has, the greater its financial challenges will be in the coming years,” LexisNexis Senior Vice President, Financial Services Tom Brown said in the report. “With Consumer Financial Protection Bureau mortgage regulations going into effect in January 2014, and demanding new rules for quality loans, it will be interesting to see what impact this has on overall mortgage defaults.”
